Supreme Court sets aside NCLT judgment for relying on hallucinated AI-generated citations

The Supreme Court on Thursday set aside a National Company Law Tribunal (NCLT) judgment on Essel Infraprojects insolvency after finding that the tribunal had relied on non-existent, fake and hallucinated judgments/ precedents generated through artificial intelligence (AI) tools [Pooja Ramesh Singh Vs J&K Bank].

A Bench of Justices PS Narasimha and Alok Aradhe held that such reliance on hallucinated material strikes at the integrity of adjudication and its processes and courts must adopt a zero-tolerance approach when dealing with fake AI precedents produced by lawyers without verification.

The same amounts to misconduct on the part of the advocate, the Court held.

"It is necessary for Courts to adopt a zero-tolerance mode for producing, citing or using AI-generated precedents without verification. It is a misconduct on the part of an advocate to cite such judgments without verification," the Bench said.

Equally, it is a serious lapse if a judge relies on such a fake or hallucinated AI-generated material as precedents in support of the determination, the top court emphasised.

"We have no hesitation in declaring that such a decision is no decision in the eyes of the law, irrespective of whether such material had a direct or indirect bearing on the decision-making. Such decisions are to be set aside even if an iota of fake or hallucinated material enters the decision-making process, as it would violate the sanctity of adjudication," the Court stated.

Hence, it set aside the NCLT verdict as well as the judgment of the National Company Law Appellate Tribunal (NCLAT) which had upheld the NCLT judgment.

“For the reasons to follow, we have set aside the judgement of the NCLT, as well as the (NCLAT) judgement in opinion, to affirm and maintain the integrity of the adjudication and its processes,” the Court said.

The Court added that the case raised a larger concern over the use of AI in legal adjudication. It emphasised that while AI can be adopted as an aid, human control over adjudication must remain total and absolute at every stage.

“What is significant for our decision-making is our resolve to adopt artificial intelligence technology in the aid of adjudication, while at the same time asserting, and declaring total and absolute control over adjudications, to the human in the loop, at every stage,” the judgment stated.

The Court warned that AI has now acquired the capability to not only assist, but even substitute both routine and intellectual efforts. Given the increased workload of modern life, the Court noted that professionals may be compelled to adopt AI for efficient functioning.

“The result can be gratifying, even inspiring,” the Court observed.

However, the Bench cautioned that if left unregulated, AI may infiltrate intellectual work ethic and make professionals dependent on its capabilities.

The Court said that while technology has been seamlessly absorbed by courts and made an integral part of the judicial system, AI stands on a different footing.

“The story of AI, as it is unfolding, is, however, different. In fact, transformative as it is, not just an aid to assist us in our work, but it is an alternative to our own thinking, reasoning, and even decision making,” the Court said.

The Court proceeded to warn judges about the pitfalls of AI.

“This is where we need to be extra cautious, as unregulated use of AI will insidiously enter legal practice and process of justice, decision making and decision making itself."

The Court clarified that it was not dealing with the cause of hallucinations or the technical process for resolving them, which it said was for engineers and scientists to deal with. For courts and lawyers, the concern was the production of fake and non-existing material and its use as precedents in law.

“This byproduct, that is AI, that is the production of fake, non-existing, and hallucinated material, and its utilisation, as precedents in law, is like release of methyl isocyanide with the province of law and justice. Invisible, insidious, and catastrophic, by the time anyone notices, it is not only contaminant, but takes away the very lifeline of judicial determination,” it added.

The Supreme Court also directed the Bar Council of India to constitute a committee and examine the issue in detail.

The case arose from a plea filed by suspended director Pooja Ramesh Singh against orders of NCLT admitting Essel Infraprojects to corporate insolvency resolution process on a Section 7 application filed by Jammu and Kashmir Bank Limited.

The NCLT Mumbai Bench had, on August 28, 2024, admitted the insolvency plea for a claimed debt of ₹87.43 crore. The NCLAT upheld the order on September 11, 2025.

The debt arose from a ₹200 crore facility granted by Jammu and Kashmir Bank to Pan India Utilities Distribution Company Limited. The facility was secured by a corporate guarantee from Essel Infraprojects and a mortgage over land at Gorai, Borivali in Mumbai.

The NCLT Bench comprising Judicial Member Rita Kohli and Technical Member Madhu Sinha rejected this argument and held that the corporate guarantee continued to bind Essel Infraprojects.

However, the Supreme Court found that the tribunal had relied on non-existing and hallucinated material as precedents in support of its judgment.

“So far as the precision on facts are concerned, we set aside the judgement of the NCLT, as well as NCLAT, and ask the tribunals to decide them on the facts,” the Court said.

Senior Advocate Madhavi Divan appeared for Pooja Ramesh Singh and was assisted by advocate Vishesh Kalra.

Jammu and Kashmir Bank was represented by advocate Sumesh Dhawan with a team from Dua Associates led by advocate Sanjana Dua.

[Read Judgment]